As part of the most recent collective bargaining agreement with employees, an employer must offer medical insurance at "reasonable, non-profit rates." The employer plans to self-insure in place of using a private insurance company. Statistical evidence suggests that the average household currently spends $450 per year for medical bills and $80 for health screening and routine check-ups. Administrative costs are expected to average $30 per family. The collective bargaining agreement dictates that the plan's coverages and rates be fixed for a period of
As part of the most recent collective bargaining agreement with employees, an employer must offer medical insurance at "reasonable, non-profit rates." The employer plans to self-insure in place of using a private insurance company. Statistical evidence suggests that the average household currently spends $450 per year for medical bills and $80 for health screening and routine check-ups. Administrative costs are expected to average $30 per family. The collective bargaining agreement dictates that the plan's coverages and rates be fixed for a period of two years. The auditor considers the choice of the plan to be extremely important. Consequently, the auditor has asked you to evaluate the three proposals listed below.
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Proposal A would charge a $350 premium with no deductible. Coverage is extended to pre-existing conditions, but to cover the non-deductible clause, health screening and routine check-ups are not covered. |
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Proposal B charges a $250 premium with a $200 deductible. The plan does not cover pre-existing conditions but does cover health screening and routine check-ups. |
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Proposal C charges a $150 premium with a $150 deductible. This plan does not cover pre-existing conditions. Health screening and routine check-ups are not covered, either. |
Discuss both of the following two questions:
- Would you recommend proposal A to the employer and the auditor? You must provide your rationales for your recommendation and decision.
- From the perspectives of an economist and an employee respectively, which proposal would you recommend to the employer? You must provide your rationales for your recommendation.
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